MARKET REVIEW MAY 06 - 10

The key event of the beginning of the week was another threat from the USA President Donald Trump. In the usual manner of Trump, he threatened on his Twitter that he would raise tariffs to 25% this Friday if China is not compliant. “The Trade negotiations with China continue, but too slowly, as they try to renegotiate the terms. No!" , the American President wrote on Twitter. The Us officials are considering whether China will participate in the negotiations this week. The White House and the office of the USA Trade Representative declined to comment. China's Ministry of trade did not immediately respond to a request for comment. The Chinese side only stated the fact that "the atmosphere of negotiations has changed". Beijing claims, that now everything depends on the US position. The editor of an influential Chinese state newspaper said that Vice Prime Minister Liu He is unlikely to go to negotiations.

"Let Trump raise tariffs. Let's see when trade negotiations can resume», Hu Xijin, editor-in-chief of the Global Times, tweeted. The world stock markets reacted rapidly to the threat of Trump. The futures market opened a significant decline. Market participants forgot about the strong report of the USA labor market, which was released last Friday. Employment at historical highs. The unemployment has declined to a record 3.6 % in the last 50 years. But, as no one doubted about the strong employment, the attention was focused on wages, or more exact on possible their growth, which did not happen. After all, the wage growth can accelerate inflation, which the Fed expects. So, we'll just have to wait. During the week we should pay attention to the release of business activity in the EU today. Tomorrow we will know about the state of Germany's production capacity and the economic forecasts of the EU. On Wednesday, the head of the ECB Mario Draghi will comment to the published Protocol of the ECB's monetary policy. According to the US releases during the current trading five-day period, the main attention will be paid to inflation indicators, we talked about their importance earlier. Also important will be the release of import/export volumes, the producer price index, and trade balance. Also on Thursday, the head of the Fed Jerome Powell will speak. Friday will be extremely volatile. First, if progress in US-China trade negotiations delayed because of Trump's threats. The US will resume tariff pressure on Beijing, the escalation of the trade war will return the dollar to the status of a protective asset. Second, if the USA inflation indicators accelerate, according to the consensus forecast, the Fed's rhetoric may change from neutral to hawkish. Accelerating inflation will increase the chances of the Fed raising interest rates in this year. Today, the US regulator is almost the only one who can afford an aggressive monetary policy, having secured a strong labor market and a growing economy.

GBP/USD

The British also deserves attention this week. While British voters punished the two ruling parties that lose their dominance in the British Parliament. The strong labor market in the United Kingdom can please sterling lovers. Certainly, the risks of an escalating trade war between the US and China will put pressure on many major currencies that do not belong to protective currencies such as the Japanese yen and the Swiss franc. But to discard at all the improvement on the economic background, according to forecasts, it is not necessary. Tomorrow there will be data on the real estate sector in Britain, including housing price indices. The resumption of growth in real estate prices in the United Kingdom is already a good signal for the pound sterling. At the equator, there will be data on retail sales in Britain. This is not only an inflation indicator but also an indirect indicator of consumer confidence. After all, if the consumer trusts his state, he spends his money more easily. The main news of the week for sterling is the data of the UK GDP. Taking into the account, the strong labor market, which is the main investment of British companies, the economy of the Foggy Albion has every chance of growth, which provides a consensus forecast.

But as this Friday, there is a big chance of an escalation of the US trade war with China, it may force investors to ignore the improvement in the economic background in Britain.

OIL

The aggravation of tensions over trade negotiations could not be reflected in the quotations of crude oil, which, as pressure from the US increased last year, declined for most of last year. The trade war resulted in billions of dollars in losses for both sides of the conflict, causing collateral damage to export-dependent economies and companies from Japan to Germany. The USA President Donald Trump thinks that negotiations with China are "too slow”. He will raise tariffs by $200 billion on Chinese goods, that is, raise trade tariffs from 10% to 25% in this Friday. Today, of course, everyone understands that the escalation of the trade conflict will hit the demand for crude oil and its products. Most markets were optimistic, during weak but progress week in the negotiations between Washington and Beijing. The Chinese side, namely Chinese Deputy Prime Minister Liu He, is due to fly to Washington this week. If this does not happen, and there is no significant progress in the negotiations, further escalation will only increase the pressure on the black gold. Especially, taking into account the stable growth of production in the world, which more or less aligned the levels of supply and demand in the world market.

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